Greg Davies: Three ways stochastic tools are less use than you think

The cost of complexity

clock • 5 min read

A cashflow process is not an end in itself, argues Greg Davies, as he runs through a number of reasons why, judged against what they are trying to achieve, stochastic tools may not add much value in financial planning

Cashflow modelling has long been at the core of financial planning. It is where diagnosis of the past and predictions of the future come together to prescribe actions for the present. In effect, it is an attempt to solve a puzzle - how should you account for long-term uncertainty in your short-term actions? A scattering of puzzle-solving approaches has evolved, though each boils down to a cost-benefit analysis of a lifetime of ins and outs: of income, inheritances, goals, and gifts; and appropriately weighting the likelihood and influence of each. Evolution repurposes existing feature...

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